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12.6 Luxembourg Social Charges and Payroll Liabilities

Social Charges in Luxembourg​

Social Charges include:

  • Employee social security contributions
  • Employer social security contributions
  • Health insurance
  • Pension contributions
  • Unemployment insurance

Employee Social Charges​

Employee Portion:

  • Deducted from gross salary
  • Payable by employer
  • Various rates apply

Example:

  • Gross Salary: €5,000
  • Employee Social Charges: €1,000 (20%)

Journal Entry:

620000 Salaries Expense           €5,000
440000 Salaries Payable                        €4,000
442000 Employee Social Charges Payable         €1,000
To record salary with employee social charges

Employer Social Charges​

Employer Portion:

  • Additional cost to employer
  • Not deducted from employee
  • Various rates apply

Example:

  • Gross Salary: €5,000
  • Employer Social Charges: €1,200 (24%)

Journal Entry:

620000 Salaries Expense           €1,200
443000 Employer Social Charges Payable         €1,200
To record employer social charges

Total Payroll Cost​

Total Cost:

  • Gross Salary: €5,000
  • Employee Social Charges: €1,000
  • Employer Social Charges: €1,200
  • Total Cost: €7,200

Payment of Social Charges​

Payment:

442000 Employee Social Charges Payable €1,000
443000 Employer Social Charges Payable  1,200
510000 Cash                                   €2,200
To record payment of social charges

Luxembourg Compliance Note​

Social charges in Luxembourg:

  • Must be calculated correctly
  • Must be paid on time
  • Must comply with rates
  • Must maintain records
  • Penalties for late payment
  • Must use proper PCN accounts

Think It Through​

Why are social charges significant for Luxembourg businesses? How do they affect total payroll costs?